New briefs find relatively few hospitals providing bulk of charity health care in the state

By Sarah Yang, Media Relations | 27 October 2003

BERKELEY – Do non-profit hospitals deserve the tax breaks they get? California policy makers are hotly debating this question by considering the amount of charity health care these hospitals provide for the medically indigent and uninsured.

But because the state provides no clear guidelines for what determines charity care, the dollar figures involved can vary 12-fold from $437 million to $5.3 billion in a single year, according to a series of three policy briefs by researchers at the University of California, Berkeley.

The briefs will be released Monday, Oct. 27, by the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at UC Berkeley's School of Public Health.

The narrowest definition of unreimbursed care - pure charity care - refers to services provided to patients who are unable to pay and for which the hospital does not bill. Based upon that definition, California hospitals provided $437 million in unreimbursed care in 2000.

Expanding the definition to include "bad debt," or unpaid bills, in addition to pure charity care ups the level of unreimbursed care provided by California hospitals in 2000 to $1.5 billion. Critics say, however, that bad debt relates more to inadequate hospital collection practices rather than true charitable care.

A third, even broader definition of unreimbursed care is based upon the premise that the payments hospitals accept from Medi-Cal and other indigent care programs are lower than the actual cost of the services. With this view, the amount skyrockets to $5.3 billion.

All three definitions are up for grabs, depending upon which position is being argued.

"That the dollar figures for the amount of unreimbursed care can change so dramatically just by changing how care is defined should raise flags for policy makers and taxpayers," said Richard Scheffler, UC Berkeley professor of health economics and public policy and director of the Petris Center. "The problem with having such a wide range in unreimbursed care estimates is that it makes it difficult to make sound health policy and budget decisions because it's not clear how much funding is at stake. As the debate over whether non-profit hospitals deserve the benefits they receive heats up, policy makers must decide whether to preserve programs that enable hospitals to provide unreimbursed care."

Lisa Simonson Maiuro, a consultant to the Petris Center and co-author of the report, noted that there are valid arguments for each definition of unreimbursed care, but that policy makers need clear guidelines to accurately evaluate the distribution of charity care provided by hospitals. There is also concern about the financial viability of hospitals that provide the most services for the indigent and uninsured.

The researchers point out that California hospitals are facing increasing financial pressures stemming from the costs needed to comply with recent state and federal regulations, including:

Seismic retrofits required by state Senate Bill 1953

Upgrades to information systems and technology to comply with the federal Health Insurance Portability and Accountability Act (HIPAA)

System changes to reduce medical errors associated with state Senate Bill 1875

Increased labor costs associated with mandatory increases in nurse-patient
ratios called for in state Assembly Bill 394

Moreover, nearly all the hospitals providing high levels of unreimbursed care are part of the Disproportionate Share Program, which provides federal funding for hospitals that serve a disproportionate share of Medi-Cal patients and the uninsured. The federal Balanced Budget Act of 1997, however, has significantly reduced funding for the program.

All those funding cuts could translate into a high stakes impact on people's health and well-being, the authors said.

In 2001, there were 6.2 million residents under 65 without health insurance in California, more than any other state in the country. Hospital charity care provides a critical safety net for a large percentage of the uninsured.

The findings show that from 1998-2000, the average yearly amount of uncompensated care - pure charity care plus bad debt - provided in California totaled more than $972 million. During that time, only 12 percent of hospitals provided 50 percent of the uncompensated care in California.

"The fact that so few hospitals shoulder the bulk of providing uncompensated care shows just how fragile the safety net for the uninsured can be," said Scheffler. "California needs to rethink how charity care is provided given the growing number of uninsured."

Non-profit hospitals provided the majority - 61 percent - of uncompensated care. However, when adjusted for the proportion of total staffed beds, government-owned hospitals provided twice as much uncompensated care per bed as non-profit hospitals, and three times as much as investor-owned hospitals.

The report ultimately points to the need for more clarity in how hospitals report charity care, said the authors.

"This is the public's wallet," said Maiuro, partner at Infotree Consulting and former deputy director of the health policy unit of the Office of Statewide Health Planning and Development. "They have the right to know how and where the money is being spent."